CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

USD/JPY – where next with risk?

With the oscillating risk sentiment driving the safe haven yen, we have certainly seen yen crosses whipsawed in recent sessions by the altering rhetoric surrounding trade.

IG Analyst

2018-04-11T09:30:09+0100

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

Source: Bloomberg

Trading the trade risks

While USD/JPY had first broken below the August 2017 low on account of the softer-than-expected Japanese GDP figures, the eruption of concerns surrounding the on-going US-China trade skirmish had been one to send the currency pair to a fresh sixteen-month below the $105 figure. President Donald Trump’s unexpected orders to look into the $60 billion worth of retaliatory tariffs in March sparked off a bout of tit-for-tat reactions that gave yen traders much to follow.

It is interesting to note, however, that following the initial reaction, the yen as a proxy of risk had actually progressively softened against the US dollar on hopes of conciliation. Technically speaking, USD/JPY certainly presented us with an inverse head-and-shoulder pattern that had seen its neckline at around $106.90 broken, which could present us with a potential squeeze towards the recent downtrend at around the $108 figure. President Xi Jinping’s latest speech at the Bo’ao forum had been viewed as the offering of an olive branch in the current tit-for-tat retaliation fashioned trade dispute, with positive response from his US counterpart. While it may still be too early to judge, we could be staring at the semblance of the light towards the end of the current trade skirmish tunnel, which may also mean that the impact from trade sentiment could start to wear out.

Bank of Japan’s monetary policy

Certainly few are expecting an all-out trade war, even if we should let our jitters be revealed through price action. With this thought in the mind, we should remain cognizant that over the long run, monetary policy may remain the primary driver and the actions of the Bank of Japan (BoJ) would be key. The Japanese central bank remains one of the most dovish amongst advanced economies central banks, but even so, expectations are for the BoJ to taper in the longer term that keeps USD/JPY on a downward bias.

Look for prices to remain in the downtrend on longer term expectations. Although, the risk-induced volatility could continue to see yen pairs experiencing more two-way fluctuations. Stronger resistance seen currently at the $108 figure while support comes in at $105.5 ahead of $104.59, ones to watch.

USD/JPY chart

Share this article

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand the risks and take care to manage your exposure.

Trading CFDs may not be suitable for everyone, so please ensure that you fully understand the risks involved. IG does not issue advice, recommendations or opinion in relation to acquiring, holding or disposing of a CFD. IG is not a financial advisor and all services are provided on an execution only basis.

The information on this site is not directed at residents of the United States, Belgium or any particular country outside the UAE and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.